With payday loans, you pay dearly for quick access to cash. Most payday lenders charge much higher interest rates than other lenders.
The most a payday lender can charge you is 15% of the principal amount borrowed. This includes interest and other fees. It may not sound like a lot, but it’s a very expensive way to borrow money.
For example, say you take out a $300 payday loan with a two week term. That 15% charge adds up to $45. This translates into a very high annual percentage rate of interest.
The annual percentage rate of interest tells you how much it costs to borrow for one year. Your 14-day $300 payday loan has a heartstopping rate of 391%. In comparison, a typical credit card has a rate of around 20%.
In other words, taking out a 14-day payday loan is roughly 20 times as expensive as using a credit card. And it’s about 50 times as expensive as borrowing from a line of credit.